Windows 8 Tablets: Why Microsoft Must Slash Prices

Microsoft can maintain its market dominance with Windows 8 if it tries something not in its normal playbook.

To its credit, Microsoft already appears headed in the right direction. It has allegedly offered discounted Windows 8 licenses and bundled Office software to OEMs that are making smaller tablets. The iPad Mini has demonstrated that consumers like the 7-inch form factor, and Redmond desperately needs a presence in that market segment. Smaller components should drive costs down, so with Microsoft's OEM enticements speeding new models onto store shelves, consumers might soon have what the Surface RT should have been in the first place. These devices should help.

There's also speculation that Redmond could produce a Surface Reader, perhaps a 7-inch device that could offer a differentiated package due to not only Windows 8.1, but also Microsoft's Barnes & Noble assets.

Even so, the path is fraught with uncertainties. To Microsoft and its partners, a $350 Windows RT tablet might seem like a great deal, especially if it features the original Surface's impressive build quality. I'm not convinced that cost will be low enough. It would barely undercut the just-released Samsung Galaxy Note 8 and rate only comparably to the iPad Mini. Both of those devices run on platforms with entrenched and loyal user bases. If Windows 8 is to attract users with prices that are merely similar to those of the competition, it will need a truly unique hook, some sort of differentiated experience. Neither Microsoft's first round of Modern core app updates nor recent Windows 8.1 rumors have suggested that Redmond will deliver this sort of leap in the short term.

Even the appeal of Office, the most prominent advantage Windows 8 currently has over its competitors, might be eroding. Google's recent release of Quickoffice for both iOS and Android won't topple Office from its perch atop the market. But as users come to accept this and other alternatives, Microsoft will continue to lose leverage. Lacking any truly magnetic features that could convert those not already in its stable, Redmond must therefore turn to low prices to build momentum.

It will have to do so while maintaining OEM relationships, which could get tricky depending on how Microsoft prices future Surface products. Redmond is also surely concerned about one-time actions turning into precedents; low costs and discounted licenses might be necessary at the moment, but Microsoft certainly hopes to return to high-margin living, and to avoid coming off as desperate. Such hopes put pressure on the company to make major strides between Windows 8 versions. Windows 8.1 isn't a colossal overhaul, but if Microsoft lowers prices now and wants to raise them again later, it will need to offer a superior experience that users recognize to be worth the upgrade. Given that a Retina-equipped iPad Mini is almost certainly in the cards, Redmond could also encounter trouble if it encourages OEMs to use low-quality screens to bring down costs. It's a challenging situation all around.

Even so, Microsoft's future is in the Windows ecosystem, and in the billions of users it hopes to keep plugged into it. Current devices and even Windows 8 are only means to this end. Redmond might have grand plans a few years down the roadmap, but it will have trouble getting there if it doesn't get consumers onboard in the present. That means we need good, cheap tablets, and we need them fast.

I'm not convinced Office is a selling point for tablets. Small screens just aren't that pleasant to use for word processing and spreadsheets. Office on Windows Phones have made them a market leader. In a docking station, maybe, but that's even more additional cost.

Where's the price reduction going to come from? MSFT itself can eat the cost of the Windows license, but if OEMs would also need to sell their tablets at lower cost, the only place with significant give is Windows OEM license fees. I doubt MSFT is going to subsidize Windows tablets like they subsidized the Xbox, so how much less could they charge for Windows 8 or RT for tablets?

However, it's apps that are the weakest spot. I just can't believe enterprises are going to be big Windows 8 tablet buyers for the small screen issue mentioned above as well as wanting to avoid supporting a different tablet OS than the standard desktop OS (7 or XP, for now). That means Windows 8/RT tablets have to catch on with consumers, and cost is secondary to what they'd do with the tablet after they bought it.

Windows tablets need to run new UI apps, and there has to be enough apps to tickle the fancy of tens of millions of different people. What MSFT really needs to figure out ASAP is how to quadruple the number of apps by 4th quarter for the 2013 holiday season. One idea might be MSFT cutting its share of Windows Store revenues to 10% and capping their take at, say, US$25,000 for really popular apps. Yes, that may put a huge dent in Windows Store revenues, but what does any retailer do when sales have been in the tank? SALE!

Michael, you're presenting an absurd argument. If Microsoft needs to discount to that low price level, then they've lost before they start. Microsoft is trying to compete with a quality tablet, at least in hardware. As that tablet costs about as much to make as the iPad, pricing must be about what the iPad's is. If they sold it for $250, they would lose at least $100 on the sale of each tablet, and possibly $150. It could be even more!

So how would that help? Sell a million tablets and lost $100 to $150 million? Sell 10 million and lose $1 to 1.5 billion? Yeah, that would be brilliant thinking , right out of the box. And if they sold 100 million over a couple of years, as they would need to for success, though those numbers would still be well below iPad sales, they would lose a staggering $10 to 15 billion!

Is this a way to run a business? Sure, right into the ground. Like so many other so called business writers, you don't seem to have a clue on what running a business means.

They already lose so much money on most of their businesses that they can't afford to lose more on this. And what would this tell everyone? It would say that no one wanted this so they had to sell it at fire sale prices. That would be true even if they came out at those prices.

The same thing would be true for the Pro. Selling it at half the price might actually bring sales to an acceptable level, but at what cost?

Sort of, but not exactly. If Microsoft and its OEMs drive down tablet costs by using cheap components, they won't get very far. The devices need to be inexpensive AND solidly constructed. So if "crap" refers to build, no, not at all what I meant.

If "crap" refers to Windows 8 itself, that's a different conversation. But even then, I think we define "crap" partly in terms of price and expectation. Windows 8 doesn't give a lot of users what they'd expect from an expensive device. But for a consumer-oriented cheap consumption device, it's decent enough. Not great, no-- which is why I suggested being cost-competitive with the iPad and other alternatives won't be enough. The new, small form factor Windows 8 tablets would need to be even cheaper. I wouldn't buy a Surface RT for $500 when I can get an iPad Mini for 65% the cost. But if I could get a Surface RT for 80% the cost of the cheapest iPad, I think I'd be pretty happy with the purchase.

That Windows 8 needs refinement is clear, and Microsoft is working on it. But it's not clear if Microsoft is making the correct refinements. It's also not clear how quickly these refinements might arrive. If Windows Blue doesn't deliver them, how many more update cycles will it take? So, If Windows 8 is going to gain market share before these enhancements hit (which is a necessity, since Microsoft could otherwise fall too far behind to catch up), it will take well-built, cheap devices that pitch Windows 8 or RT to consumption-loving consumers. Windows is about much more than this-- but Microsoft needs these consumers now. Windows 8's end game is in the ecosystem, and developers won't help create the ecosystem unless there are more users. These small tablets could help.

I know you're intentionally conflating nom de plume/nom de guerre and soupe du jour, but to get it right: nom de jour s/be nom du jour Only the latter means "today's name" The former means the "name of the day" such as the names of the days of the week. Here's the usage in context in French grammar: http://grammaire.reverso.net/4... Cheers!

There are different types of market - Government, Enterprise, Large Business, Medium Business, Small Business, Consumer, and many other in between. Government will buy anything expensive, consumers will buy anything cheap (I am making it simpler).

MS is trying to build a product that will please everyone, for over $1000. They will bundle everything and charge for everything. This strategy will not work in consumer market at all, where a user really only needs a few apps. So price is definitely #1 criteria in this market, and Michael is absolutely right about it.

#2, is Windows tablet really a complete replacement for laptop / desktop? (Maybe for a traveling salesman. But a traveling salesman can also very well use other cheaper tablets.) In fact, this tablet cannot do all the stuff that I am currently doing on my laptop.

So the big question is, who needs this tablet? And what extra can this tablet do that a cheaper laptop and/or tablet cannot do?

pblanc,You are on the right track. I believe they should go even farther and raise the price of the product to double what it currently is. They are not asking enough for them. Doubling the price will create the impression that it is even more valuable than it is at current prices. This market perception of greater value should drive up demand and create far more revenue and greater margin for Microsoft. This would be a win win strategy--they should do it immediately. I will seriously consider buying one once they make this strategic move.

I don't disagree that the Surface Pro is a dream come true for certain users. The build quality is strong, it's relatively powerful (though I wonder if it will seem somewhat less so when the Haswell tablets and hybrids hit), and it puts both a real laptop and a real tablet in one portable package. So why shouldn't Microsoft be able to charge more for a premium device? There's an argument to be made that in the case of Surface Pro, maybe a higher price is fine. It hasn't set the world on fire but it's sold much better than the Surface RT. It's also the only Windows 8 device that I've heard companies are currently considering. Still, the Surface Pro enthusiasts are a niche market, and a relatively high price (especially in light of the fact that Surface Pro might not seem so "unique" in a few months) doesn't do much to change that.

Microsoft's potential problem isn't that it's going to crumble into bankruptcy. It has $60 billion in the bank and is going to be around for a long, long time. No, the problem is that Microsoft might not be dominant for much longer. Producing niche products only contributes to Redmond being a mere player, not an industry-leading All Star. One could argue that niche products are fine for now, since Surface Pro is just a start. That's fair. Microsoft has some wiggle room due to the enterprise customer base. But that wiggle room buys only so much time. Analysts currently predict that Microsoft, currently ruler of 90% of the world's PCs, will be battling for second place with Apple OSes by 2017, with Android far ahead. To a company accustomed to being the biggest fish in the pond, this possibility is troubling. We haven't hit the point at which Microsoft has waited too long to produce a real crowd-pleaser-- but it's coming.

But Surface Pro isn't really what the article is about. I think Microsoft should try to produce premium devices that maximize whatever Windows 8 is capable of. Hopefully this will soon include not only elegantly implemented access to traditional software but also unique perceptual computing technology and apps-- not just touch but gesture and voice too. That's a role that, if carved out, could allow Windows 8 to establish its own personality, and to offer pleasing experiences and workflows that iOS and Android can't match. If those devices are excellent, then Microsoft can charge what Apple charges for its MacBook Pros.

But in the meantime, Microsoft needs Windows 8 adoption now. Inexpensive 8-inch tablets will do that.